Good To Grow Rate Drop to 1.40% | Meridian Credit Union | Discussion forum

But their GTG-TFSA stayed at 1.5% apparently:

https://www.meridiancu.ca/Personal/Investing/Registered-Savings-Plans/Tax-Free-Savings-Account-(TFSA).aspx

Note: The ".aspx" needs to be added manually to the link above. The forum website does not keep the ".aspx" for some reasons...

Well, we are both right... but their site is showing conflicting information...

I guess that this statement on their site is exact: "...All rates are subject to change without notice. Other conditions may apply..."

Loonie said
Poor show, when BofC is expected to raise rates.  

That may well exactly be the strategy, Loonie. *tongue somewhat in cheek* 😉

How to Pull a Head-Fake on your Deposit Rates & New Deposits to Acquisition Strategy in 3 Easy Steps Whilst Increasing your Net Interest Margin
* Step 1: Shortly before a widely-expected Bank of Canada rate increase to its overnight lending rate (and/or to its other applicable rates), lower your HISA deposit rate by an equivalent number of basis points (bps, or 1/100ths of a percentage point). If asked, justify it by the aforementioned and widely-expected central bank rate move
* Step 2: On or, ideally, shortly after, so as to make it look much less coincidental, raise your HISA deposit rate by an equivalent number of basis points to the recently-announced central bank rate move. Explain that this move is in relation to the most recent central bank rate action. Note: if you want to get even "greedier," raise the deposit rate by an amount slightly less than the recent central bank rate move
* Step 3: Profit (even more)!

Note: Net net, though, you've really expanded your NIM likely by 25 bps (if that's the amount of central bank's rate action as you've most likely already raised your institution's Prime Lending Rate on which your loan book is based), or more if you got greedy (see above). A word of caution: A small minority of your customers will be wise to this "trickery," and will almost certainly take to sites like the PersonalFinanceCanada sub-reddit of Reddit but, pay them no mind and ignore their comments on your company's social media pages or, better yet, turn on moderation. The vast majority are clueless to these moves and will move (or move back) to you like good, "woolly" little sheep.

And one more thing... this same corporate strategy can be used in central bank rate actions to the downside, as has already been done a couple times in 2015.

Cheers,
Doug

P.S. I have separate comments separately on the BoC move that I'll share lately but, if you want a bit of a "taste" as to what they will be, I encourage you to Google Capital Economics senior economist David Madani's most recent economic commentary on the rate move. 😉

Loonie said
You're probably right, Doug, that a lot of people won't even notice - sadly. And it's true that I got no response whatsoever when I complained.

It makes no sense to me to be offering 1.5% 15 month mortgages and screwing your depositors. What is the point of a 1.5% mortgage in this environment?

They told me that it is necessary so that young people can get into the housing market. No sensible young person should be taking on a 1.5% short term mortgage on their first property when rates are likely to go up in foreseeable future. The only ones who might wisely do this will be the ones who are simultaneously putting aside pay-down money - and those ones don't need any "help" to get into the housing market.

The other group that could benefit from the 1.5% rate are people with older mortgages who can afford to take the risks of shorter terms because they have paid down more of their principal. And they too don't need incentives.

Yes, they want to be competitive. But it's a race to the bottom, and nobody wins as far as I can see.

Your theory makes sense except that I'm not sure they plan to ever put it up again. I think they are doing what EQ did - have a high rate at the beginning, and then gradually lower it. They have identified their competition as the Big Banks. That's the market they're after, not the likes of you and I. As long as they keep a bit ahead of the big banks, they may be able to hang on to most of the money.

Eventually, however, the people who noticed that they could do better than the Big Banks by moving to Meridian will also notice that they can do even better elsewhere, as they are the "curious" type who are willing to try something different.  

15-month mortgage terms!? Really!? They might as well go with an open, variable rate mortgage with that short of a term, in my opinion. 🙂

You're right about calling what the bank told you about needing to help young people to get into the housing market. I would add, and this is my opinion as a non-homeowner but a potential one down the road, mortgage rate is obviously a factor in determining where to get one's mortgage in order to extract the best value and pay the least interest but, realistically, if they're stress-testing borrowers at at least 200 bps above their contracted mortgage rate, a 50 or even 100 bps difference would, and should, not matter in the determination as to a person's qualification. What a load of hooey*! 😉

That said, with my view to respect to future BoC moves, I maintain that a variable rate mortgage is the best way to go still as I believe this move was shortsighted and not taking into account recent structural & regulatory changes in B.C., Vancouver, Ontario and Toronto that will have a much bigger impact (to the downside) on CPI and to GDP than they're expecting. As a result, I'm now predicting either significant regional recessions
across Canada that will have anemic, sub 1% CPI/GDP growth, within the next 12 months or a nationwide recession within the same timeframe. The BoC will, embarrassingly, have to reverse course, I suspect, within or near that timeframe, and cut its overnight rates. So, with that said, I'd be advocating sticking to shorter term GIC maturities and HISAs. 🙂

Cheers,
Doug

* assuming that's how you spell "hooey"

Top It Up said
Forum readers would be reminded that this is an anonymous forum and therefore careful and thorough due diligence is strongly advised before undertaking any investing strategy.  

Was this directed at me?

I take offence to that as I'm very much an advocate of that statement (read my past posts). Also, I'm not one of those "anonymous" ones to which you've referred. I always use my real name, even if just a first name sometimes. 🙂

And lastly...GICs are hardly an investing strategy. This is more of a personal finance strategy, in which case, no regulatory concerns or loss of capital so the same disclosure need not apply. 😉

Cheers,
Doug

Loonie said

The whole thing sounds (and I daresay is) unpredictable.
Think I'll stick with ladders, more or less. I always keep a lot of short term anyway, for personal reasons.  

The whole thing is unpredictable. I used to respect the BoC's decisions, until last week when they seemingly bowed to the will of the news media and the market. 🙁

GIC ladders are good. My former colleague at HSBC always would tell me how she & her husband only bought GICs and when I'd ask about maturities, she said that buying "all five-year GICs" always worked out "the best" for them but never offered any proof. I was always skeptical on why that'd be or if it was even true.

In short, 5-year maturities are great in that they're always the best rates but, when I think about it, maybe that's actually what FIs want us to think and, like insurers and pension plans, allows them to easily match GIC maturities with 5-year mortgage terms?

I'd definitely keep some, if I were a GIC investor, but right now, I'd probably overweight the 1-, 2- and 3-year maturities, given the uncertainty now as to future direction on BoC rates - there's just as much chance of a rate cut as there is a rate increase. 🙂

Cheers,
Doug

AlainJF said
But their GTG-TFSA stayed at 1.5% apparently:

https://www.meridiancu.ca/Personal/Investing/Registered-Savings-Plans/Tax-Free-Savings-Account-(TFSA).aspx

Note: The ".aspx" needs to be added manually to the link above. The forum website does not keep the ".aspx" for some reasons...  

They have dropped the TFSA rate as well now.